How much Biden's Build Back Better Act would lower child care costs

Under provisions of the Build Back Better Act budget reconciliation bill recently passed by House Democrats, families in 32 states would save more than $100 a week on childcare.

The House Education and Labor Committee recently passed its portion of the Build Back Better budget, which sets aside about $90 billion in federal funding to help families with children under the age of 5 pay for childcare based on their income. Under the plan, families earning less than 75% of the state median income (SMI) would pay nothing for childcare. Those earning between 75% and 200% SMI would pay no more than 7% of their annual income on childcare. Currently, the average family spends about 13% of their income on childcare, according to recent report released by the Treasury Department.

That could mean real savings for American families. In about 32 states, a typical family would save over $100 a week under the new childcare proposal, according to a new state-by-state analysis shared exclusively with Fortune on Wednesday by the Center for American Progress, a left-leaning public policy research and advocacy organization.

Over the course of a year, the analysis predicts that the Build Back Better Act could lower families’ annual childcare costs by about $5,000 to $6,500 in most states.

"This really speaks to how much some families are spending on childcare right now. Childcare is one of the major household expenses for families with young children," said Rasheed Malik, the associate director of research for early childhood policy at the Center for American Progress.

To estimate weekly childcare savings, the report used data from the U.S. Census Bureau's Survey of Income and Program Participation to calculate that families with working mothers and at least one child under the age of 5 earn an average of $130,000 and pay $250 per week for childcare, or approximately $13,000 annually. The analysis then adjusted the average state by state to reflect the wide variation in childcare prices and median incomes.

Families living in D.C. would see the biggest savings, just over $300 a week, followed by Massachusetts, California, and New York. Currently, these regions also represent where families pay the highest percentage of their income toward childcare—well over 10%.

Parents with young children currently enrolled in childcare that live in the Southern states of Alabama, Mississippi, and South Carolina are expected to see the lowest weekly savings under the proposed Build Back Better funding. The expected savings for a typical family in Alabama, for instance, is about $31 a week.

It's worth noting that parents typically pay less for childcare to start with in those states, Malik said. Additionally, these states also still have wage minimums at the $7.25 federal level, which lowers the median state income and limits funding eligibility among residents earning incomes closer to the national median.

While Wednesday's analysis is robust, it also doesn't cover every situation. There are a lot of families who would benefit from this funding that don't really show up in the data. Many parents simply can't afford the cost of care, and so they find alternatives, either by using family and friends or rearranging their work schedules, Malik explained.

"Presently so many families, low-income families and middle-class families, can't even really afford to fully access the childcare system. So this is looking at right now—the typical type of family who can lay out thousands of dollars for care," Malik said. "Others might be eligible for no-cost, high-quality childcare in the future if this is fully implemented."

In addition to helping families reduce the cost of childcare, the approved provisions of the House Build Back Better Act also provide funding for universal pre-K, the creation of a Child Care Information Network, a new Child Care Wage Grant program to boost wages for childcare workers, as well as $15 billion for direct investments in childcare facilities.

This comes at a time when 80% of childcare providers report being understaffed, and even for-profit childcare centers have struggled during the COVID-19 pandemic. In many cases, the shortages come down to pay, since the average worker is paid well under $15 per hour.

"In states that have very low-cost childcare now, this type of investment would mean keeping costs low, but improving access, supply, and quality through higher wages for the predominantly women who have been holding up that industry for so long," Malik said.